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An Economic Chart That Could Spell Trouble

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Fund flows are interesting in that they help market analysts gauge investor sentiment in specific assets or the markets as a whole.

“For instance, if net fund flows for bonds funds during a given month is negative by a large amount, this would signal broad-based pessimism over the fixed-income markets,” Investopedia notes, offering a helpful explanation for the concept.

That being said, something interesting happened earlier this year with foreign interest in USD-denominated assets. Simply put, foreign interest collapsed.

Here’s a chart to help you visualize the drop:

Reuters Ecowin, Morgan Stanley Research, Business Insider.

“It is the combination of the Fed printing money and slowing domestic US growth which is likely to lead US funds to be sent abroad while foreign interest in USD-denominated assets falls,” Morgan Stanley’s Hans Redekar wrote.

“Foreign demand for US stocks and sovereign bonds collapsed earlier this year, and Wednesday’s release of the TIC August report will be important. Should long-term TIC flows drop below the July level, the USD would come under additional selling pressure,” he adds.